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Angola Economic Outlook
Macroeconomic performance and outlook
Angola continues to face a challenging macroeconomic environment since the sharp drop in oil prices in 2014. A real GDP contraction of 0.1% is estimated for 2019, indicating that the recession has not yet ended. Even so, there are signs of recovery, and growth of 2.8% is predicted for 2020. The oil price shock of 2014 reduced oil revenues from 35.3% of GDP to 17.5% in 2017, leaving an estimated fiscal deficit of 0.1% of GDP in 2019. The value-added tax adopted in 2019 should broaden the tax base and reduce government dependency on oil-related revenues.
The current account surplus is estimated to narrow from 6.9% of GDP in 2018 to 0.5% in 2019, driven by lower export earnings from the oil sector. Pressure on the exchange rate and inflation continues. To reduce the overvaluation of the real exchange rate and ensure that international reserves remain adequate, the government tightened public spending and increased exchange rate flexibility. Reserve money targeting, introduced at the end of 2017, is beginning to stabilize inflation, which dropped from 29.8% in 2017 to an estimated 17.5% in 2019. The fiscal deficits are being financed by external debt and by budget support from multilateral organizations.
Foreign currency shortages generally pose challenges to the tradable (mainly nonoil) sector. Manufacturing contracted 6.5% in the first quarter of 2019. In contrast, construction, electricity, and agriculture posted positive growth, on balance increasing the nonoil sector’s growth. Unemployment is currently 28%, and real GDP per capita growth is expected to stay negative given the low productivity and fast population growth.
Tailwinds and headwinds
Structural reforms will contribute to the economic recovery from 2020 onward. Strategic investments in infrastructure, human capital, and credit markets should diversify Angola’s economy, improve its current account balance, and generate international reserves (about 98% of exports are oil and diamonds).
Government support for export diversification and import substitution is identifying priority sectors to benefit from such initiatives as the credit support program announced in May 2019. Enhanced investments in energy will stimulate growth.
Investments in activities and value chains based on comparative advantages in agriculture, fisheries, and petrochemicals need to be aligned with skill upgrading and human capital development.
A 9% reduction in oil production in 2018 is due to the aging of oil production infrastructure and poor performance of new oil fields. Low workforce skills are also hindering private investment and economic diversification, with only 15% of females and 21% of males completing upper secondary school. The business environment needs to improve private sector-led growth and competitiveness. Structural reforms and macroeconomic stabilization must pave way to economic recovery, diversification, and job creation.
Gradual reductions in subsidies for water, petrol, electricity, and public transport are expected in 2020 as part of an effort to rationalize the tax system and generate nonoil revenue. The likelihood of greater private investment and participation in the economy is limited but expected to improve given the privatization program announced in August 2019 (including 195 state-owned enterprises). The Regulatory Authority for Competition was established in February 2019 to increase private competition.